Stock of the Week: Costco

Why the share price isn’t much of a bargain.

Andrew Willis 27 September, 2021 | 4:39AM
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Andrew Willis: Crowds and COVID have proven to be no deterrent to Costco (COST)’s consumer appeal. With such an appetite for bargains, does it make sense for investors to join the club? Not quite.

A Costco membership may be a passport to 72-pound cheese wheels at low prices but the bargains don’t extend to the shares, says Analyst Zain Akbari.

Consider the company’s value proposition twenty years from now. How will Costco’s purchasing power, brand strength and cost leverage fare amidst changes in retail that are only just getting underway? Digitization and a pandemic altered the long-term trajectory of the retail industry. The crowds may still be there, but there could be less in the shopping carts as we go further online. And game-changing concepts like mobile commerce and omnichannel fulfillment are still in their infancy today.

Costco’s had advantages that most retailers could only dream about. But relying on these advantages as a long-term investor assumes a level of consistency and merchandising perfection that we think will be tough to achieve.

For Costco to expand, we’ll need to see even lower prices and some time for target foreign markets to develop and become one with the giant muffins and cheap pizza. Until then, you’re better off buying the membership.

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Costco Wholesale Corp872.87 USD0.57Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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